Bob Doll On His 2016 Predictions

Bob Doll is a senior portfolio manager and chief equity strategist at Nuveen Asset Management. Bob manages the Large Cap Equity Series, which includes traditional large cap equities, specialty categories and alternative strategies. He is a highly-respected authority on the equities markets among investors, advisors and the media. As the author of widely-followed weekly commentaries and annual market predictions, Bob provides ongoing, timely market perspectives.

Prior to joining Nuveen Asset Management, Bob Doll held similar roles at other large asset management firms, including serving as chief equity strategist at Blackrock, president and chief investment officer of Merrill Lynch Investment Managers and chief investment officer of Oppenheimer Funds, Inc. He has 36 years of portfolio management experience, received a B.S. in accounting and a B.A. in economics from Lehigh University and an M.B.A. from the Wharton School of the University of Pennsylvania. He is a Certified Public Accountant and holds the Chartered Financial Analyst designation from the CFA Institute.

Bob Doll appears regularly on CNBC, Bloomberg TV and Fox Business News discussing the economy and markets. He has also been quoted in major business publications such as The Wall Street Journal, Barron’s and Financial Times.

I spoke to Bob Doll on February 29.

I want to start by looking at some of your 2016 predictions, which you published in January. You forecast a single-digit percentage return for U.S. equity investors. Through Friday, the S&P 500 had declined by 4.98%. Obviously, we are only a couple of months into the year, but do you believe that equities can make up that loss and still deliver single-digit returns? Are you questioning any of the underlying assumptions behind your forecast?

First, to clarify, my prediction was for a single-digit percentage change, not a single-digit percentage gain. We left ourselves wiggle room for returns from +10% to -10%.

The secret to the stock market this year will be earnings. Earnings are dependent on the price of oil and the dollar. Last year, without the decline in oil prices and the rise in the dollar, earnings would have been up 8%. I don’t know anybody – myself included – who can forecast oil or the dollar. Currency and commodity predictions are an impossibility. I am still hanging in with my forecast and I feel good about it. I can’t forecast a big up-year because of the problems with deflation overseas. I can’t come up with a big down-year because there are a lot of good things happening in the U.S., mainly around the U.S. consumer.

I want to come back to oil and earnings in a second, but first I want to ask you about your prediction for bonds. You forecast that stocks will outperform bonds and Treasury yields would increase. Thus far, the 10-year Treasury has returned about 5% to its investors and its yield has gone from 2.24% to 1.76%, down about 50 basis points. Has the bond market been driven by lower growth expectations for the economy? What lies ahead this year for bonds?

The decline in yield has largely been driven by a fear of deflation that his infected the world and the US. If we get deflation, then the yield decrease on the 10-year Treasury makes sense. But I believe we’re not going to experience deflation in this country. In fact, the CPI report we received in the last few weeks showed that core inflation is now up 2.3%, driven by upward wage pressure, and that’s the strongest number we’ve seen in a decade. Based on that and a resumption in growth, the fear of deflation appears to be lessening some.